Phases 3 & 4: Debt Paydown + Reserve Buildup

Paul Jarvis, CFP®

Partner | CERTIFIED FINANCIAL PLANNER™ | Wannabe Pickleball Pro

https://video.wixstatic.com/video/e5defd_df5aed94efae49f79b9141a4f9dc52af/1080p/mp4/file.mp4

We are now entering Phases 3 and 4 of the Financial Order of Operations: tackling debt and building your savings reserves.

Each week, my goal is to help you build practical financial skills and give you a clear guide for how to use your cash flow. If you’ve been following along, you’ll notice that we’re progressing in a very specific order. That’s intentional.

Over time—both personally and professionally—I noticed that many individuals and families weren’t struggling because they lacked income or intelligence. They were struggling because they lacked an order. Cash flow was coming in, but there was no clear framework for what should come first, second, or third.

The 10 phases of this Financial Order of Operations fully solidified when I was asked to present to a department of Emergency Room physicians and staff. I was tasked with creating something approachable and practical—something that would help them not fall flat on their faces. What resonated most wasn’t complexity. It was clarity. People were hungry for a way to prioritize their financial decisions without constantly second-guessing themselves.

If you missed the first two phases, here’s a quick recap:

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Phase #1: Protect your income and establish an initial savings of three months of expenses

Phase #2: Capturing the Employer Match - I speak to employer sponsored retirement plans such as 401(k)s and contributing enough to capture the full matching contribution by your employer 

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In this week’s video, I cover both Phases 3 and 4.

For this video, you’ll find me hiking Cathedral Rock in Sedona, Arizona. It’s the kind of place that makes you slow down, pay attention, and focus on balance—exactly what these phases are about.

Phase 3 focuses on paying down high-interest debt, generally anything above about 6% interest. The core idea is simple: as you eliminate one debt, you don’t let that freed-up cash flow disappear. You intentionally redirect it to the next priority.

I typically organize debts from highest interest rate to lowest and focus on paying off the most expensive debt first. This approach is commonly referred to as the Avalanche Method.

For comparison, I’ve included an image from Fidelity that contrasts the Avalanche Method with the Snowball Method, which prioritizes paying off the smallest balances first. The Snowball Method can be motivating because you see quick wins early on, while the Avalanche Method often saves more in interest over time. There’s no universal right answer—the best approach is the one you can stick with

—but it’s important to understand how each one works.

What I find most satisfying about Phases 3 and 4 is how clearly they shape behavior. You start to see momentum build. Your cash flow becomes more intentional. Each payoff reinforces the next good decision.

Once high-interest debt is under control, Phase 4 becomes much easier: expanding your savings reserve from three months of expenses to six months. At this point, you’re no longer just reacting to unexpected expenses—you’re prepared for them.

And that preparation opens the door to what comes next.

With expensive debt behind you and a solid reserve in place, you’re ready to move into Phase 5, where we begin taking advantage of tax-preferred savings accounts and long-term growth opportunities.

One phase at a time. One decision at a time. That’s how financial stability is built.

Subscribe to my newsletter for more financial tips, and if you would like personized advice, feel free to reach out to schedule an appointment.

-Paul

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